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Barry Schwartz of Baskin Wealth Management.The Globe and Mail

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Barry Schwartz doesn’t spend much time worrying about which way the markets are heading. Instead, the executive vice-president and chief investment officer at Baskin Wealth Management prefers to own a collection of growth-focused companies that will thrive in good and bad environments.

“We like big-branded, strong companies that make acquisitions when times are tough because they have the balance sheets to do it. Then, when times are great, they ride the waves,” says Mr. Schwartz, who is also a portfolio manager at Toronto-based Baskin, which oversees $2.1-billion in assets.

His firm’s long-term growth portfolio strategy, which includes a mix of up to 70 to 85 per cent equities (with the remainder in fixed income), was up 24.2 per cent in 2023. Its three-year annualized return was 7.3 per cent and its five-year annualized return was 11 per cent. The performance is based on total returns and net of fees as of Dec. 31, 2023.

The Globe and Mail spoke with Mr. Schwartz recently about what he’s been buying and selling – and the big technology stock he wished he hadn’t sold.

Describe your investing style.

We try to own a mix of 30 to 35 high-quality North American businesses that think and act long term and are run by management teams that have skin in the game. For us, high-quality companies generally have lots of recurring revenue, capital-light business models, high returns on invested capital and the ability to compound those returns. Many investors want to own dividend-paying stocks. The problem with a company focused solely on dividends is that there’s little left to reinvest in the business. We prefer to own companies with managers skilled at allocating and reinvesting capital, such as Constellation Software Inc. CSU-T, Brookfield Corp. BN-T, or Berkshire Hathway Inc. BRK-A-N, BRK-B-N.

Do you hold much cash?

We don’t sit on cash. We prefer to be fully invested. In my experience, cash has always been a drag on performance. I tell clients we will hold cash for them for short-term periods only. For example, if they have liquidity needs for something such as buying a home or helping their children buy one. I believe long-term returns on stock markets, as well as bonds, will outperform cash.

How do you use bonds?

For the first time in about 20 years, bonds finally provide a livable rate of return. We’ve increased our allocation for clients where it’s appropriate. We own shorter-term bonds between two and five years. We generally ladder our bonds for two to five years. In recent months, we’ve extended that to the four to five-year range to lock in those higher rates.

What’s your take on the current market environment?

We try not to focus on the day-to-day market environment because nobody knows what will happen. Look at 2023, when everyone came into the year thinking there would be a recession and central banks would be cutting interest rates, which, as we know, didn’t happen. It’s important to pay attention to this stuff, but it’s impossible to figure out. All I know is stock valuations are less attractive than at the start of 2023 and more attractive than in 2021. I think a sensible investor should recognize that returns on U.S. stocks – after outperforming for the past 10-plus years – will probably be more normal in the near term, which is high single digits.

What have you been buying?

Brookfield is a company we’ve owned for more than 20 years and continue to buy. It’s a growth business that plays in big markets and is run by a remarkable management team. Brookfield has recently entered the insurance and annuities business in the U.S., which is a huge market. Some investors are overthinking concerns on the real estate side and forgetting all of its other areas of investment that are doing very well. The company generates a huge amount of cash flow and will likely continue buying more companies while also buying back stock and increasing dividends.

Another company we’ve been adding to is Watsco Inc. WSO-N, a distributor of HVAC supplies in the U.S. It buys from several manufacturers and sells to contractors. It also sells after-market parts. This company has no debt. It has raised its dividend every year for 50 years. And given its clean balance sheet, it’s just biding its time to continue to acquire more distributors. We also think it’s a good name because of the climate crisis, which will force mandates to sell more energy-efficient furnaces, heat pumps and air conditioners. And if the world is heating up, we will need more conditioning. Watsco is currently focused on the U.S. Sunbelt, so it has lots of room to build out the business in other regions.

What have you been selling?

We’ve pared back a few stocks, including Toronto-Dominion Bank TD-T, Brookfield Infrastructure Corp. BIPC-T and Telus Corp. T-T. We still own these stocks, but we’re reducing our exposure to mature businesses like these that are facing more pressure owing to higher interest rates. I don’t think interest rates are going up from here, but they’ll not be dropping to zero. In general, we’ve been trimming more dividend-focused stocks in favour of more growth names.

Name a stock you wish you bought or didn’t sell.

We regret selling Facebook parent Meta Platforms Inc. META-Q in 2022 at just below US$200 a share. This one haunts me because the stock rocketed higher last year and is trading at around US$375, near its all-time high. We looked pretty smart for a while after we sold it. We even got nice e-mails from people saying, ‘Boy, that was smart,’ because it fell to US$90 after we sold. Our mistake was not buying it back and recognizing that even if [co-founder and CEO Mark] Zuckerberg throws out money on the Metaverse, the other parts of the business are so good that it won’t matter. The lesson is don’t be afraid to buy back stock just because you sold it.

What’s your advice for new investors?

You have to learn by experience. For new investors, you should own index funds. I know that’s strange advice coming from an active manager, but if you’re not willing to commit the time to studying stocks, if you don’t have the obsession like my team and I have, then buy an index fund that tracks the S&P 500.

Also, don’t think you’re a genius just because you made some money. Most of the time, it’s just because the market went up. The S&P 500 tends to increase over the long term, so stick with those tailwinds.

This interview has been edited and condensed.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 23/02/24 4:00pm EST.

SymbolName% changeLast
Constellation Software Inc
Brookfield Corporation
Berkshire Hathaway Cl A
Berkshire Hathaway Cl B
Watsco Inc
Brookfield Infrastructure Corp
Telus Corp
Toronto-Dominion Bank
Meta Platforms Inc

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